Guildmaster indicted for counterfeit UL stickers, files Chapter 11

SPRINGFIELD, MO.-BASED home furnishings source Guildmaster filed for Chapter 11 bankruptcy protection Dec. 13 after being indicted earlier that week by the federal government on nine counts of selling lamps with counterfeit and otherwise unauthorized Underwriters Laboratories stickers. According to the indictment, filed in the Western District of Missouri, "Guildmaster intentionally trafficked and attempted to traffic in goods, specifically portable lamps of various designs ... while knowingly using on and in connection with such goods counterfeit marks, namely spurious marks identical to and substantially indistinguishable from ‘Portable Luminaire' labels bearing the UL Mark ... the use of which counterfeit marks were likely to cause confusion, to cause mistake, and to deceive." These charges represent a Class C felony, with maximum penalty of five years of probation and forfeiture of the seized property, the indictment states. According to the indictment, U.S. Customs and Border Protection intercepted and seized 10 shipments of lamps bearing counterfeit labels, as well as raiding the company's Springfield, Mo. warehouse. In response to the seizure and as part of the bankruptcy proceedings, Guildmaster filed suit for the return of the 5,150 seized lamps. In the meantime, Guildmaster continued to conduct business as usual and is shipping all products, company officials said. UL is an independent product safety certification organization. UL certifies representative samples of products to be in compliance with its safety requirements, and conducts follow-up inspections of those products and their manufacturers. By way of contracts with participating manufacturers, UL authorizes the manufacturers to identify products meeting UL safety standards with labels bearing a federally registered certification mark. As a certification mark, the UL Mark on a product is a manufacturer's representation and advertisement to the public that the product met UL's safety requirements. The indictment states that Guildmaster imported into the United States shipments of lamps manufactured at the Dongguan Yangming Hardware Crafts Limited, a Chinese lamp factory that Guildmaster acquired in late 2011. On those lamps were affixed counterfeit labels, which the indictment described as "substantially indistinguishable from genuine ‘Portable Luminaire' labels bearing the UL Mark." "The employees of the Chinese plant decided indiscriminately and incorrectly - without U.S. personnel or U.S. management knowledge - that the lamps needed to have the UL-certified stickers on them," said Guildmaster CEO Steve Crowder in a statement. "We first learned of the offending stickers on January 27, 2012, the day after the seizure and immediately agreed that the removable stickers should not be on the lamps and had the stickers removed and destroyed in China."Guildmaster lamps are constructed of UL-certified components, but the stickers are considered counterfeit because Guildmaster does not hold a license for UL-certified "Portable Luminaire" assembly. "The basis for this motion to return the lamps is that the seized lamps are property of the ‘estate' under bankruptcy code and that because removing the sticker eliminates the issue, the lamps should be returned to Guildmaster to sell in order to pay our debtors under bankruptcy protection," Crowder said. "Since the seizure we have manufactured and shipped thousands of lamps - sans the counterfeit stickers - with no further audits or government inspections. It makes no sense to destroy the lamps when removing the stickers solves the problem." The indictment said that UL terminated its relationship with Guildmaster in 2007 after about 17 years because the company failed to pay outstanding invoices. It added that no contractual relationship ever existed between UL and Dongguan Yangming. Crowder told Home Accents Today, prior to the indictment, that the Chapter 11 filing would be made to restructure the company's debt incurred after the seizures, which accounted for more than $900,000 in inventory, lost sales and a denial of surety bonds. "We have operated with total integrity and transparency throughout this ordeal. After much thought, we filed suit against the government for return of the lamps because doing what is right is more important than the bottom line. We are fighting for jobs and for people to live in a world of common sense," Crowder said. "Guildmaster has created 400 jobs worldwide and made a profit during an economy that has been challenging. The company supports a children's orphanage in Indonesia and was the first to develop a sustainable reforestation program in a country ravaged by corruption and illegal logging. We have taught capitalism to workforces in China and Indonesia, setting up bonus programs and paying above average wages. We are doing this because it is the right thing to do." According to an earlier statement from the company: "It is well documented through CBP agent interviews of Guildmaster employees in the U.S. and China and through our documentation that the ‘questionable stickers' were part of a process in existence at a factory that Guildmaster purchased in October 2011. "The previous company owners believed that they were in compliance with U.S. laws by purchasing the stickers from an agency of the Chinese government. Guildmaster never implied or marketed that the lamps were UL-certified. "To allege that we somehow used the UL certification or trademark to leverage the value of the UL trademark is ridiculous. If that were that case we would have not only advertised that the lamps were UL listed but we would have merchandised them so that the customer would be aware that they were UL listed. It is an extreme stretch to imply that this is a criminal activity." The Chapter 11 filing said that Guildmaster employs about 25 employees in Springfield and nearly 375 employees in Indonesia and China. The company is following its normal schedule of product introductions for the winter markets, as well as for the High Point Market in April. It continues to manufacture products without disruption at its plants in Indonesia and China. "While this has been a distraction for management, we are manufacturing and shipping orders on time as usual," Crowder said. "Since we own our plants in Indonesia and China, we control our supply chain and have not faced difficulties there. It is business as usual." In 2011, its annual sales were more than $12.5 million and the company had more than 4,000 large and small retail accounts, the filing said. It lists about $3.4 million in assets and $3.5 million in liabilities. It also lists accounts receivable as of Dec. 11 at $399,260. Its largest shareholder, according to the Chapter 11 filing, is SRC Holding, which owns about 40% of the company's shares. In addition to its financial backers, factories and logistics providers, the company's top 20 unsecured creditors include its sales rep partners, In Detail of Dallas, J. Douglas of Atlanta and Casa Bella of Chicago; as well as its market showroom lease-holders, including Americasmart, Dallas Market Center and High Point's Commerce & Design Building.